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Tuesday, October 25, 2005



Can lightning be captured in a bottle—Chinese style? I think not.

I would suggest that the effort to capture both “rents” and cheap labor have been the primary motive for FDI in these parks. While there may be some spillover, positive results, as the author admits, are inconclusive.

What we are witnessing, I would suggest, is something akin to what the U.S. is doing: slowly destroying the synergy among corporations, universities, and the government. In the hopes of capturing greater profits and in the desire to lay immediate claim on any new emerging technology, corporations are now successfully having the government direct more and more of its public R&D to them, effectively removing the third—and creative—leg of this synergy: Universities.

Having witnessed and fully understanding how a fledging idea can flourish in a university and potentially grow to be a serious economic rival, corporations wish to forestall this kind of development—quite naturally so, I must add. They want the ideas for themselves. Unfortunately, they do not necessarily provide the kind of culture required.

The Chinese government is no better. It is moving along the same path: Government feeding corporate R&D. The universities provide fodder to the corporate mill. Serendipity and discovery cannot be planned or programmed. It requires a freedom of movement that requires more than a profit motive. Tax breaks and cheap labor…even moving entire Western production chains along with Western corporate R&D will not bring about technological leaps. What it has done is to break Western synergy. Small advances in productivity, yes; maybe even a small derivative breakthrough here and there. All that is being sought is greater profit, not new ideas. Simply churning out new engineers will not suffice. Putting a group of very bright and curious people in a room—give them a real and pressing problem and give them anything they need to effect a solution—that would go a tad further.

Mature technologies from Silicon Valley and those around the route 128 corridor are moving abroad in the hopes of achieving great profits and greater economies of scale. They are not moving to cash in on vibrant new ideas. Rather, they are counting on cheap labor, both in terms of production and in terms of R&D, to fill their now overflowing coffers.

Movie Guy

Ah, Stormy! You're back home...

Movie Guy

Ok, it's time for my analysis:

Economic Hydrology Theory

The Future of Domestic Production versus Offshoring and Outsourcing to Foreign Locations

Once the WTO and national governments improved the opportunities for corporations to invest in the least expensive global production locations, the stage was set. Coupled with continually improving transportation and communications efficiencies, the successes of offshoring and outsourcing corporations which led the way were met by competitive desires of other corporations to also seek new lowest cost production sources. At present, over 450 of 500 top U.S. corporations have operations in China, as an example.

Unimpeded and with regard to available skill levels and technologies, corporations will seek out the lowest cost blue collar and white collar production sources on the planet and will create new production empires in those locations as fit their market needs. Currency manipulations and other foreign and domestic government incentives that improve foreign-based blue collar and white collar production opportunities increase the rate of flow or transference to such locations. The larger concentration of global production in lowest cost production environments results in a convergence of foreign direct investment (FDI) monies targeted toward achieving greater scales of production at these locations. This effort, in turn, minimizes the need for investment and development elsewhere by such corporations which further eliminates the logistical and technical support chains that previously existed for duplicate operations at facility locations in other nations. The results are reduced overall investment costs, reduced production costs, labor substitution, and reduction of related supporting logistical and technical support services and employment in other nations.

Movie Guy

(with permission, hopefully)



The first part of the manufacturing production discussion began under the following post:

Mark Thoma - Paul Krugman: The Big Squeeze

57 comment posts...

This launched before the second post New Economist provided the 'Movie Guy' link.


For an example of the kind of serendipity of which I speak, note the following recent remarkable discovery applying adaptive optics in astronomy to our understanding of how we perceive color.


No technological park will do this, no matter how many engineers you pour in. Astronomy to biology. I can see the CEO now: "You are going to what? Count cones in a retina? What's the profit margin?" Note: This discovery was made in a university.

Yep, home again, movieguy. I did look at that series of posts. Nice. Are they starting to listen to you? LOL. The EHT theory may gain coinage. Now that I think about it, econometrics could nail it down with some interesting math. I think Delphi hit a lot of them, especially when they started to understand how Delphi prepared for the China move well in advance.

Rahul Magan

The Information Technology is one of the important sectors in the world today but the fact is that most of the people of the world are ignoring China only because the China is not as capable as the India is in the IT sector but there are several reasons behind the success story of Indian IT industry. The main reason is the largest fiscal defecit if the Govt. of India on the path it seems that it is an abbretion from the topic but that is the fact because of the presence of the large fiscal deficit in India the India is not able to stop the depreciation of the rupess as compared to the dollars and the net income of the indian IT companies are large but the PRC is in fiscal surplus mode and the value of the RMB is most competitive as compared to any other currency of the world and that makes the value of the Chinese software companies less popular as compared to the Indian IT companies .

The second biggest reason behind the success story of Indian IT companies is that till 2009 there is no tax on the Indian IT companies and that makes their inflow more and they are spending that money to create their R&D but if the tax system is their then in that case there is no point they can devote any money to the R&D and the real thing is going to be in the open.

So please don't take a wrong view for the chinese software industry because they are the best and the prime example is the emergence of Dalian and Xian as the two software destinations in china besides others places in china.

Rahul Magan

[email protected]
[email protected]


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